Free Texas Life & Health Insurance License Practice Test

Correct answer: The policy together with the application attached to it is treated as the contract, and the answers are the representations the insurer relied on

Under Tex. Ins. Code ch. 1101, the policy together with the application attached to it is treated as the contract between the parties, and the answers on the application are the representations the insurer relied on in accepting the risk — which is why a material wrong answer can give grounds to contest during the limited contestable period.

From the free practice set Application mechanics: signatures, changes, and incomplete applications

Correct answer: A false statement in connection with an insurance transaction, prohibited as an unfair or deceptive practice and exposing the license to action

Signing another person's name, or submitting a form the applicant has not read and signed, is a false statement made in connection with an insurance transaction. That conduct falls within the unfair methods of competition and unfair or deceptive acts prohibited by Tex. Ins. Code ch. 541, and it carries license consequences on top of any contract problem.

From the free practice set Application mechanics: signatures, changes, and incomplete applications

Correct answer: Misrepresentation of the terms and benefits of a policy, a prohibited unfair or deceptive act

Because the policy's own definitions control whether a claim is paid, describing them inaccurately to an applicant is a misrepresentation of the terms and benefits of the policy, one of the unfair or deceptive acts prohibited by Texas Insurance Code Chapter 541 (Tex. Ins. Code ch. 541).

From the free practice set Disability classifications: total, partial, recurrent, and residual

Correct answer: All three riders terminate, because a rider has no existence apart from the base policy to which it is attached

A rider is an amendment attached to the base policy, and under Texas law the policy together with attached riders and endorsements and the application make up the entire contract (Tex. Ins. Code ch. 1101). A rider has no independent life: if the base policy lapses or is surrendered, every rider attached to it ends as well.

From the free practice set Waiver, guaranteed-insurability, payor, and accidental-death riders

Correct answer: The relapse is treated as a continuation of the earlier claim, so no new elimination period applies

A recurrent disability provision states that if the insured relapses within a stated period after returning to work, the new period of disability is treated as a continuation of the prior claim. Because it is the same claim, no new elimination period must be satisfied and benefits resume immediately.

From the free practice set Disability income and accidental death and dismemberment policies

Correct answer: It is a voluntary outpatient prescription drug benefit delivered only through private plans that contract with Medicare.

Part D is the voluntary prescription drug benefit. It covers outpatient prescription drugs and is delivered only through private plans under contract with Medicare — either a standalone prescription drug plan added to Original Medicare or the drug portion of a Medicare Advantage plan (an MA-PD).

From the free practice set Medicare Parts A, B, C, and D

Correct answer: Chapter 1201

Both disability income and AD&D coverages are accident and health contracts under Title 8 of the Texas Insurance Code, and individual policy forms and required provisions are governed by Chapter 1201, Accident and Health Insurance (Tex. Ins. Code ch. 1201; Tex. Ins. Code Title 8).

From the free practice set Disability income and accidental death and dismemberment policies

Correct answer: It is voluntary supplementary medical insurance covering physician and outpatient services, requiring a monthly premium and subject to a late-enrollment penalty structure.

Part B is supplementary medical insurance and it is voluntary. An eligible person enrolls during a designated enrollment period, pays a monthly premium, and faces a statutory late-enrollment penalty structure designed to discourage waiting. It covers physician services, outpatient hospital services, diagnostic and laboratory tests, durable medical equipment, and preventive services, generally paying a share of the approved amount after an annual deductible.

From the free practice set Medicare Parts A, B, C, and D

Correct answer: The child was covered from the moment of birth, but because the notice and premium deadline was missed the insurer may end the automatic coverage

Coverage attaches from the moment of birth regardless of the notice requirement. The 31-day notice-and-premium condition governs continuation, so an insured who misses that window (here, waiting until April 20 for a March 3 birth) may lose the automatic continued coverage even though the child was covered at birth.

From the free practice set Required policy provisions: newborn and chemical-dependency coverage

Correct answer: Not covered, because the sickness began within ten days after the date of reinstatement

The reinstated policy covers accidental injury from the date of reinstatement, but sickness only if it begins more than ten days after that date. A sickness beginning June 6, five days after a June 1 reinstatement, falls inside that ten-day window and is not covered.

From the free practice set Mandatory provisions I: entire contract, incontestability, grace period, reinstatement

Correct answer: It pays as though he were totally disabled, even though he is still working

Presumptive disability provisions treat certain specified losses — such as sight, hearing, speech, or the use of two limbs — as total disability, so benefits are paid as if the insured were totally disabled even if he continues to work.

From the free practice set Disability classifications: total, partial, recurrent, and residual

Correct answer: The death benefit reduced by the unpaid loan balance and the interest owed on it

A whole life owner may borrow against the policy's cash value, but the Texas Department of Insurance warns that an unpaid loan and the interest on it reduce the amount the beneficiary receives (Tex. Dep't of Ins. Consumer Pub. CB018, Life Insurance Guide). The insurer settles the claim by subtracting the outstanding loan and interest from the death benefit.

From the free practice set Traditional whole life products

Correct answer: Misrepresentation, a prohibited unfair or deceptive practice

Deliberately omitting known adverse information to get a policy issued or a better rate — sometimes called clean sheeting — is misrepresentation, not salesmanship, and is prohibited conduct under Tex. Ins. Code ch. 541.

From the free practice set Application mechanics: signatures, changes, and incomplete applications

Correct answer: Explain plainly what the receipt does and does not do, including whether coverage begins before the insurer approves the risk

When the initial premium is collected with the application, the producer must give the insurer's receipt and explain in plain terms what it provides — particularly whether any coverage attaches before the insurer approves the risk. Overstating what a receipt provides is a misrepresentation of the terms and conditions of coverage, which is treated as an unfair or deceptive act or practice under Tex. Ins. Code ch. 541.

From the free practice set Completing the health insurance application

Correct answer: The policy is reinstated automatically if the insurer has not previously notified the insured in writing of its disapproval within the period stated in the provision — commonly the 45th day following the date of the conditional receipt.

When a reinstatement application is required, the insurer gives a conditional receipt for the premium. The policy is reinstated on approval by the insurer, or automatically if the insurer has not previously given the insured written notice of disapproval within the period stated in the provision — commonly 45 days after the conditional receipt date.

From the free practice set Mandatory provisions I: entire contract, incontestability, grace period, reinstatement

Correct answer: At the time the policy is applied for

Insurable interest must be present when the policy is applied for. It is not required to survive until the insured's death — a policy is not voided merely because the relationship later ends, for example when an employee leaves or a marriage ends. Without insurable interest at application, the contract is an unenforceable wager on a human life.

From the free practice set Third-party ownership of life insurance

Correct answer: Complete a fresh application with the correct information and destroy the draft

There are only two clean fixes: strike the wrong answer, enter the correct one, and have the applicant initial it; or complete a new application and destroy the draft. Erasing, whiting out, or overwriting an answer leaves an unexplained alteration that looks like tampering to a claims examiner.

From the free practice set Application mechanics: signatures, changes, and incomplete applications

Correct answer: An order directing the person to stop the conduct, together with sanctions or penalties and action against the license.

The remedies under Chapter 541 flow from the commissioner's order: the commissioner may direct a person to stop the prohibited conduct — a cease and desist order — impose sanctions or penalties, and take action against the person's license. That combination of stop-the-conduct plus sanctions plus license consequences is the hallmark of Chapter 541 enforcement.

From the free practice set Commissioner of Insurance: powers, records examination, and investigations

Correct answer: State his own name, identify the insurer he represents, and make clear that the purpose of the contact is to solicit insurance

At first contact the producer must identify himself by name, identify the insurer he represents, and make clear that the purpose of the contact is to solicit insurance. The prospect is entitled to know immediately who is calling, for whom, and why — that transparency is the foundation the later disclosure documents build on.

From the free practice set Life insurance marketing, advertising, and the buyer's guide

Correct answer: Accidental death or a major loss pays the principal sum, while a lesser loss such as one hand or the sight of one eye pays a capital sum, a stated percentage of the principal sum.

An AD&D rider adds a schedule of losses to the accidental death concept. The principal sum is the full amount, payable for accidental death or a major loss; a capital sum, expressed as a percentage of the principal sum, is payable for lesser scheduled losses such as one hand or the sight of one eye. Typical exclusions - war, self-inflicted injury, certain aviation, death while committing an illegal act - apply, and the benefit usually terminates at a stated age.

From the free practice set Waiver, guaranteed-insurability, payor, and accidental-death riders

Correct answer: Its annual premium is higher, and its cash value builds faster

Limited-pay whole life compresses the same lifetime cost into fewer years. The shorter the paying period, the higher the annual premium and the faster the cash value grows. Coverage still continues for life after the policy is paid up.

From the free practice set Traditional whole life products

Correct answer: It is a cross-purchase plan, and each policy is a third-party-owned contract

When each business owner personally owns policies on the other owners, the buy-sell is funded on a cross-purchase basis. Because the owner of each contract is someone other than its insured, every policy is a third-party-owned contract, supported by the co-owners' lawful economic interest in one another.

From the free practice set Third-party ownership of life insurance

Correct answer: Bring charges and give the producer notice of a hearing at which testimony may be taken under oath and documents compelled.

Chapter 541 gives the commissioner the machinery to determine whether a person has engaged or is engaging in a prohibited unfair or deceptive practice, to bring charges and give notice of a hearing, to take testimony under oath, and to compel the production of documents — and only then to issue an order. Notice and hearing precede the order.

From the free practice set Commissioner of Insurance: powers, records examination, and investigations

Correct answer: $150,000, because death did not result from accidental bodily injury

The accidental death rider pays only when death results from accidental bodily injury, independent of all other causes, within the time limit stated in the rider. A heart attack is death from disease or natural causes, so only the base face amount of $150,000 is payable. No accident, no accidental death benefit.

From the free practice set Waiver, guaranteed-insurability, payor, and accidental-death riders

Correct answer: A capital sum — a stated percentage of the principal sum for a lesser loss

An AD&D rider pays the principal sum for accidental death or a major loss, and a capital sum — a percentage of the principal sum — for lesser losses such as one hand or the sight of one eye. Loss of sight in one eye falls in the capital sum column of the schedule.

From the free practice set Waiver, guaranteed-insurability, payor, and accidental-death riders

Correct answer: Pay the claim; after the stated period the insurer may not reduce or deny it on the ground that the condition existed before the effective date

The same clock in the time limit on certain defenses provision protects against pre-existing condition denials: a claim for a loss beginning after the stated period cannot be reduced or denied on the ground that a condition not excluded by name or specific description existed before the effective date.

From the free practice set Mandatory provisions I: entire contract, incontestability, grace period, reinstatement

Correct answer: The total impression the advertisement is likely to leave on an ordinary consumer

Advertising is judged by its total impression on an ordinary consumer, not by dissecting sentences for literal accuracy. Emphasis, omission, layout, and headline wording can combine to mislead even when every individual statement is technically true.

From the free practice set Life insurance marketing, advertising, and the buyer's guide

Correct answer: She has a right to a hearing and to judicial review, but the order is binding on her until it is overturned.

The subject of a commissioner's order under Chapter 541 has a right to a hearing and to judicial review — the commissioner's word is not the last word. But it is the first word, and the order binds until it is set aside. Continuing the prohibited conduct while seeking review invites further sanctions.

From the free practice set Commissioner of Insurance: powers, records examination, and investigations

Correct answer: After the policy has been in force for the period stated in the provision during the insured's lifetime, the insurer may not use misstatements in the application — other than fraudulent misstatements, where the law allows that carve-out — to void the policy or deny a claim for a loss incurred after that period.

The provision limits how far back the insurer may look. Once the policy has been in force for the stated period (commonly two years for individual health coverage) during the insured's lifetime, application misstatements — except fraudulent ones where the carve-out applies — can no longer be used to void the policy or deny a claim for a loss incurred after that period.

From the free practice set Mandatory provisions I: entire contract, incontestability, grace period, reinstatement

Correct answer: No later than the 31st day after the date of birth

Chapter 1201 permits the policy to require notice of the birth and payment of any additional premium no later than the 31st day after the date of birth as a condition of continuing the child's coverage.

From the free practice set Required policy provisions: newborn and chemical-dependency coverage

Correct answer: An unfair or deceptive act or practice, because the agent is coaching the applicant to omit material information

Coaching an applicant to omit a condition so the case will be issued is misrepresentation in the business of insurance, which Texas treats as an unfair or deceptive act or practice (Tex. Ins. Code ch. 541). It also exposes the agent to license action under Tex. Ins. Code ch. 4054 and leaves the insured open to rescission or a denied claim.

From the free practice set Completing the health insurance application

Correct answer: Require the producer to cease and desist from the practice, and impose sanctions or penalties including action against the license

Chapter 541 covers unfair methods of competition and unfair or deceptive acts or practices, including misrepresentation of policy terms, and gives the commissioner authority to determine that a person engaged in a prohibited practice and issue an order directing the person to stop, imposing sanctions or penalties, and taking action against a license.

From the free practice set Commissioner of Insurance: powers, records examination, and investigations

Correct answer: Chapter 1201 of the Texas Insurance Code, within Title 8 on health insurance and other health coverages

Disability income and AD&D policies are accident and health contracts under Title 8 of the Texas Insurance Code, and individual policy forms and their required provisions are governed by Chapter 1201.

From the free practice set Disability income and accidental death and dismemberment policies

Correct answer: It preserves a financial incentive for the insured to recover and return to work

Disability income insurance replaces a portion of earned income, not all of it. Paying a percentage of pre-disability earnings keeps the insured better off working than remaining on claim, which is why insurers also apply issue and participation limits and coordinate with other income sources.

From the free practice set Disability income and accidental death and dismemberment policies

Correct answer: An executive officer of the insurer, whose approval is endorsed on or attached to the policy

The entire contract provision states that the policy, together with the application if a copy is attached, is the whole agreement, and that no change is valid unless approved by an executive officer of the insurer and that approval is endorsed on or attached to the policy. It also states expressly that no agent may change the policy or waive any of its provisions (Tex. Ins. Code ch. 1201).

From the free practice set Mandatory provisions I: entire contract, incontestability, grace period, reinstatement

Correct answer: A guaranteed insurability option that is not exercised within its stated window is lost.

Guaranteed insurability options must be exercised within the window the rider states; unexercised options are lost, not carried forward. The other statements misstate the riders: waiver of premium waives premium and pays no separate death proceeds, and accidental death requires death from accidental bodily injury independent of all other causes within the rider's time limit.

From the free practice set Waiver, guaranteed-insurability, payor, and accidental-death riders

Correct answer: A level premium, a guaranteed death benefit, and a guaranteed cash value

Traditional whole life is permanent coverage defined by three features: a premium level from issue that does not rise with the insured's age, a guaranteed death benefit payable whenever the insured dies while the policy is in force, and a guaranteed cash value that builds inside the contract. The Texas Department of Insurance describes permanent policies of this kind as lifelong protection that also builds cash value the owner can use, in contrast with term insurance covering a limited period.

From the free practice set Traditional whole life products

Correct answer: The care must be covered, because required newborn coverage includes injury and illness, including medically diagnosed congenital defects, birth abnormalities, and prematurity

Chapter 1201's newborn mandate is not limited to well-baby care. It requires coverage of the newborn's injury and illness, and the statute expressly names medically diagnosed congenital defects, birth abnormalities, and prematurity. A premature infant with a congenital heart defect in the NICU is therefore within the required coverage.

From the free practice set Required policy provisions: newborn and chemical-dependency coverage

Correct answer: Death from a heart attack caused by advanced heart disease

AD&D is accident-only, limited-benefit coverage: the loss must result from accidental bodily injury and occur within the time period the policy states after the accident. Death from disease is a sickness loss and is typically excluded, along with self-inflicted injury and war. The other three losses are accidental and appear on the schedule of losses.

From the free practice set Disability income and accidental death and dismemberment policies

Correct answer: Partial replacement preserves the insured's financial incentive to return to work

Insurers limit the benefit to a percentage of pre-disability earnings so that the insured is financially better off working than remaining on claim. Issue and participation limits and coordination with other income sources serve the same purpose.

From the free practice set Disability income and accidental death and dismemberment policies

Correct answer: Probe for the dates, the diagnosis, the treating provider, and the outcome, and record the answer as the applicant gives it.

Vague answers must be developed, not simplified. Dates, diagnoses, provider names, and outcomes are precisely what the underwriter needs, and the answer must be recorded as the applicant gives it. Turning a "sort of" into a "no," leaving the field blank, or substituting the agent's judgment about materiality all misstate what the applicant actually said.

From the free practice set Completing the health insurance application

Correct answer: It may pay policy dividends, which are not guaranteed, and owners generally may take them in cash, apply them to premiums, buy paid-up additional insurance, or leave them to accumulate

A participating policy may pay policy dividends, but dividends are not guaranteed. Owners generally may take them in cash, use them to reduce premiums, buy paid-up additional insurance, or leave them to accumulate. A nonparticipating policy pays no dividends and relies on its guarantees alone. Because costs and features vary so much, TDI urges consumers to compare policies and companies before buying.

From the free practice set Traditional whole life products

Correct answer: She has a right to a hearing and to judicial review, but the order is binding unless and until it is overturned

The subject of a commissioner's order under Chapter 541 has a right to a hearing and to judicial review, so the commissioner's word is not the last word. But it is the first word, and the order remains binding until it is overturned.

From the free practice set Commissioner of Insurance: powers, records examination, and investigations

Correct answer: The individual entitled to health care services receives an evidence of coverage describing that entitlement, even though the employer contracts with the HMO

Chapter 843 defines evidence of coverage as the document issued to an enrollee. In group situations the group holder contracts with the HMO, but the individual entitled to services still receives the document describing that entitlement.

From the free practice set HMO definitions and evidence of coverage

Correct answer: The policy is reinstated automatically once the period stated in the provision (commonly 45 days after the conditional receipt date) passes without written notice of disapproval

When the insurer requires a reinstatement application and issues a conditional receipt, the policy is reinstated either upon the insurer's approval or automatically if the insurer has not previously notified the insured in writing of its disapproval within the period stated in the provision, commonly 45 days after the conditional receipt date. Insurer silence works in the insured's favor.

From the free practice set Mandatory provisions I: entire contract, incontestability, grace period, reinstatement

Correct answer: Generally not deductible by the third-party owner

Premiums paid by a third-party owner of life insurance are generally not deductible for federal income tax purposes. The tax advantage of life insurance is on the benefit side — death proceeds paid because of the insured's death are generally excluded from the beneficiary's gross income — not on the premium side.

From the free practice set Third-party ownership of life insurance

Correct answer: $250,000, the base face amount only.

The accidental death rider pays an additional amount only when death results from accidental bodily injury, independent of all other causes, and occurs within the time limit stated in the rider. Death from disease or natural causes - here a heart attack - is simply a covered death under the base policy, so the base face amount of $250,000 is paid and the rider adds nothing.

From the free practice set Waiver, guaranteed-insurability, payor, and accidental-death riders

Correct answer: Draw a single line through the wrong entry, write the correct occupation nearby, and have the applicant initial the change

There are only two clean corrections: strike and initial, or start over with a fresh application. Striking the error with a single line, writing the correct answer, and having the applicant initial it leaves a file that shows exactly who authorized the change.

From the free practice set Application mechanics: signatures, changes, and incomplete applications

Correct answer: A cash surrender value or a paid-up nonforfeiture benefit, computed on the basis the statute prescribes

Because the owner has prepaid part of the cost of protection, Texas law does not let that value disappear on lapse. The Standard Nonforfeiture Law for Life Insurance requires life policies to provide, after premiums have been paid for the period stated in the policy, a cash surrender value or a paid-up nonforfeiture benefit, computed on the basis the statute prescribes (Tex. Ins. Code ch. 1105). In practice that appears as surrender for cash, reduced paid-up insurance, or extended term insurance.

From the free practice set Traditional whole life products

Correct answer: All three are whole life; only the payment period differs, and ordinary whole life has the lowest annual outlay because payments are spread over the longest period

Ordinary, limited-pay, and single-premium designs are all traditional whole life; the only thing that changes is the premium-payment period. Because ordinary whole life spreads payments over the insured's lifetime (to death or the policy's maturity date), it carries the lowest annual outlay of the three. Shortening the paying period raises the premium and speeds cash value growth.

From the free practice set Traditional whole life products